The study, which surveyed Brits who have at least £5,000+ in cash savings but haven’t invested before, looked to uncover the main reasons why people aren’t investing and clarify common misconceptions.
Is your money better off in a savings account?
With a large percentage of people (85%) opting not to invest because they’d prefer to put their money in a savings account, Wealthify’s research explored the main drivers behind why people are choosing standard cash saving accounts over investment products such as Stocks and Shares ISAs.
The main reasons respondents preferred to place their money within a regular savings account were that they want to access their money quickly (95%) and believe there is less risk of losing money (94%). However, regular savings accounts may not always be the best option, experts say.
In the study, Wealthify presented respondents with a chart that compared the return of investment on a sum invested in the FTSE 100 over the past 10 years, compared to how the same investment would have grown in a cash savings account over the same time period.
Over half (52%) of people agreed that after seeing how the investment would have grown over the past 10 years, they feel more confident about investing their money.
Andy Russell, CEO at Wealthify comments:“There’s no denying that savings rates are particularly attractive at present. However, when we look at the rate of inflation – which remains in the double digits – there’s a huge gap between that and the interest rates on cash savings accounts.
“So, if the interest rate on your cash savings is below the level of inflation – which is extremely likely – over time, your money will lose value, as you’ll be able to buy less with it. That leaves us with the question, what’s the real risk – investing your money for the long term, or leaving it in a cash account to be eaten away over time?
“It’s generally advised that once you have your emergency savings in place – which is the equivalent of at least three months’ outgoings – any money you don’t need in the immediate future is invested for the long term. And by ‘long term’, we mean around 5+ years.”
The main barriers to investing
The findings show that 52% of people haven’t even considered investing in the past year with people preferring to put their money in a savings account being the main barrier (85% of respondents). Generationally, Wealthify’s research found that younger people were most likely to invest with 69% of 26 – 30-year-olds and 68% of Gen-Z (18–25-year-olds) considering it in the past year. Comparatively, older age groups were the least likely to invest their money, with just 20% of those aged 66+ having considered investing in the past year.
Many of the barriers that prevent people from investing are based on misconceptions. The top barrier to investing was preference to save in a cash account (85%), followed by a fear of getting scammed (71%). Seventy percent agree that a perceived lack of knowledge is a main reason for not investing, with a further 69% saying they don’t trust where their money will be going.
The top ten blockers
- Preference to put their money in a savings account – 85%
- Fear of scams -71%
- Lack of knowledge -70%
- Lack of trust as to where their money will be going – 69%
- Worry that they won’t be able to access their money – 69%
- The thought of it makes them nervous – 66%
- The process seems too complicated – 61%
- Doubt that investments would benefit them financially – 52%
- A belief that the risks outweigh the benefits – 50%
- Lack of money – 43%
Fear of scams
Interestingly, the second largest barrier to investing was a fear of getting scammed (71%). The number of investment scams has risen exponentially in recent years, with the Financial Ombudsman Service having stated investment scams are the fastest growing “authorised” scam complaint they now receive**.
Andy Russell, CEO at Wealthify added: “It’s understandable that people are worried about investment scams given their rise. If you’re worried about scams, the general guidance is, ‘if it feels too good to be true, it probably is.’ That means avoiding anything promising sky-high returns, at the very least.
“Choosing a trusted provider is a sure-fire way to avoid investment scams. That means checking they are fully regulated by the FCA. And in Wealthify’s case, knowing we are fully owned by Aviva – one of the UK’s largest financial services institutions with a 300-year heritage – can give you the peace of mind needed.”
Perceived lack of knowledge
The third barrier was lack of knowledge (70%). Furthermore, 66% of people stated they don’t feel confident investing their money.
The study found that a lack of dedicated financial education at school may be one of the underlying factors causing this lack of confidence. Almost three in ten people (28%) stated that they don’t feel confident investing because of the lack of education on investments in school or growing up.
Andy Russell, CEO at Wealthify added: “People think they need to be financial wizards to start investing, but the truth is that with online investment services like Wealthify you don’t need to have any investment knowledge to get started – you can now leave the heavy lifting to the experts.
“But, if you are interested in building your own knowledge of investing, we provide plenty of resources to help you do that, with a jargon-free approach.”
A common misconception around investing is that people think they need to start with a huge amount. In fact, over four in ten people (43%) haven’t invested because they don’t think they have enough money, despite all respondents having at least £5,000 in savings. The average amount respondents thought they needed to have to start investing was £40k+.
However, Andy Russell, CEO at Wealthify states that in reality you can start with a lot less: “Many people believe that you need a substantial amount of money to start investing, but this simply isn’t true. Wealthify was launched seven years ago with the aim of opening up the world of investing to anyone, not just the super wealthy. We believe that everyone deserves the chance to grow their money over the long term – that’s why we’ve broken down as many barriers as we could, offering investments from as little as £1, low fees, jargon-free communications, educational articles and tools.”